VAT’s The Way To Do It!

EVERY now and then, a beacon of hope emerges from the gloom that has been hanging over our country in recent years. Sporting successes such as the Irish soccer team qualifying for the Euro’s, Katie Taylor’s Olympic triumph or Rob Heffernan’s gold medal at the World Championships can give a great shot in the arm to the national mood. Similarly, the warm sunshine of 2013 gave a collective natural high to all of us and to top things off, the unusually good weather lingered late into the autumn. Unfortunately, all of these events have come and gone. It’s a pity they couldn’t last, given their immense benefits, socially and economically.

While all of these big national events were occurring, there was another big national event quietly impacting on thousands of lives in every community in the country. I’m referring to the government’s decision to reduce VAT on certain services from 13.5% to 9%. This was an audacious move by the then “new” government in Summer 2011. It was introduced to help stimulate activity in labour intensive sectors of the economy, particularly the tourism industry and to be fair to the government, was always flagged as a temporary stimulus measure.

The cost has been estimated at €350 million, not cheap by any standards but the measure has proven itself to be an enormous success. Most analysts agree that 15,000 new jobs have been created by it. Visitor numbers are well up, Irish tourism competitiveness has improved considerably and confidence and investment in the sector has returned. One hotelier near Killarney tells me that he has been able to employ 35 additional staff because of this innovation. 35! Think about the figure. That’s two Gaelic football teams and five subs. Maybe not a huge number in the overall scheme of things but this is just one hotel in rural south Kerry, where some entire parishes number less than two hundred people. I’ve heard similar stories all over Kerry and from speaking to my colleagues in the Oireachtas, there are similar stories all over Ireland.

Now, back to that €350 million cost. This is the figure the Department of Finance has presented but others beg to differ. Retail Excellence Ireland, for example, has argued that a Deloitte report has found that net VAT receipts because of the reduction have left €88 million of a hole but when the social protection savings and the income tax revenue from the new jobs is factored in, the figure being €261 million, the State is actually up by a net €173 million. And that €173 million doesn’t factor in the additional tax revenue generated by the spending power of the thousands of newly employed workers or the savings derived from stemming the haemorrhaging of jobs from the affected sectors, which was a major problem prior to the intervention. The Department of Finance disputes these figures but even allowing a huge margin of error of €173 million, at the very worst, the scheme would seem to have paid for itself, a compelling argument for continuation. I have strongly emphasised all of these points both in the Dáil chamber and to the Fine Gael Parliamentary Party and basically anyone with any influence who is willing to listen.

In fact, in light of all that we know about the success of this initiative, continuation of the status quo alone would be negligent of us. I argue that this success warrants expansion into other labour intensive sectors. Take construction for example. About 100,000 people on the live register, almost half of all men on the live register in Ireland, are former construction workers. The industry is on its knees, contributing far less to our overall economic activity (c. 6%) compared to construction industries in most European countries (c. 10%). Given that activity is so low and that much of that activity is state capital investment anyway, meaning that the VAT comes back, surely it wouldn’t be a massive risk to try the 9% trick for construction too? I earnestly hope that on October 15th, such real foundations for rebuilding construction jobs could be laid. Perhaps there are even further sectors that could receive similar intervention without exposing the State to major risk? It’s surely worth exploring every opportunity.

Beacons can inspire and give hope. Wouldn’t it be a pity if Ireland’s sporting successes, whether its soccer, rugby, Katie or Rob, were to pass us by without inspiring future generation of sportspeople to achieve bigger and better things? Wouldn’t it be a pity if people stayed indoors during glorious summer days instead of getting out and making hay? Wouldn’t it be a pity if a winning economic formula gets tossed aside instead of being applied more extensively? It’s a simple formula and the decision should be simple too. This is one beacon that can and should last.